Publication: Monitor Volume: 1 Issue: 131

Yesterday, President Yeltsin replaced Tatyana Paramonova as acting head of Russia’s Central Bank and nominated the present first deputy head, Aleksandr Khandruyev, in her place. The news was greeted calmly by bond and currency markets, indicating that Khandruyev’s appointment is not expected to bring major changes to the inflation-fighting policies Paramonova pursued during her year in office.

The move, nonetheless, came as a surprise. Paramonova won wide respect for the tough fiscal discipline she imposed on the Russian economy, even though this policy did not win her political popularity and the Duma twice refused to endorse her nomination. Under the Russian constitution, however, the head of the Central Bank is appointed by presidential decree and can remain in office indefinitely as long as he or she retains the President’s trust.

Paramonova took over in October 1994 from her own former mentor, Viktor Gerashchenko, whom American academic Jeffrey Sachs dubbed "the world’s worst central banker" after his policies had brought Russia to the verge of hyperinflation. Under Paramonova’s direction, the Central Bank stopped funding the fiscal deficit and the inflation rate was brought under control. This fostered confidence among investors and alleviated some of the hardship suffered by those on fixed incomes. As a result, Paramonova’s dismissal was not expected at this time. Consequently there is speculation in Moscow that Khandruyev may be a stopgap appointment, and may be replaced after the December elections, when a new Duma is in place. The name of First Deputy Premier Anatoly Chubais, architect of Russia’s privatization program, is mentioned in this respect. (9)